Thursday, 28 November 2013

Make Your Sales Team More Effective. Use the 45% Rule

The number one issue in heard at sales meetings can be summed up in a few words:  “The sales leads are crap!”
No matter how much effort marketing puts into delivering leads, most sales people remain convinced that marketing-generated leads are useless.
The problem usually isn't the leads, however; it’s likely to be how the leads are followed up.
Let’s look at a typical experience from the sales team perspective. They get 100 leads. Marketing promises that these leads are gold standard and the bystanders and time wasters have all been screened out. Each is an inbound lead from someone actively looking to buy
So the sales team block out precious hours and start calling.  All the time they are calling they are conscious of the wasted hours that could be used dealing with existing customers or deals already in the pipeline
By the time the team gets to the bottom of the pile, they have won two sales.
Next month, the team get another hundred leads and gets the same results. The month after that, they gets another hundred. But by now they are not getting any sales because they are now being “filed” under the desk.
However 45% of these leads end up eventually buying from someone!
This is a statistic that might surprise sales professionals and marketers alike: about 45% of business-to-business leads, that is people who’ve inquired about a product or service, will end up buying. (Business-to-consumer leads tend to close at an even higher percentage: typically, 55 to 60%. 
How do we know this?
According to Research by Author and Business Consultant Jim Obermeyer the following applies.
The Rule of 45: Predicting Sales Results From Inquiries
The Rule of 45 is the basic measurement premise from which you can measure the effectiveness of virtually all lead generation programs. It is a no nonsense, reliable rule which simply says that 45% of all inquiries (not just qualified sales leads), will buy from someone. The timeframe for this purchase is usually, but not always within 12 months. The percent that buys in three months is between 10%-15% and the percent that buys in six months is 26%.
If you follow-up 100% of the inquiries, the biggest variable in this formula is the time needed to reach the 45% threshold. Every product has a typical average time frame for the majority of the interested parties to make a decision. For consumer products this could be a few months, for B2B products the Rule of 45 is completed within 12 months.
On average the following rules apply:
  • Within 3 months 10%-15% of business to business prospects will buy someone's product.
  • Within 6 months, 26% will buy someone's product.
  • Within one year 45% will buy someone's product
While time is a variable for every customer, the most influential issue for a company to attain its fullest share of the market place is the follow-up by the salesperson. It follows that if the sales team only pursue 25% of the available leads then they will only compete in 25% of the available deals.
Let’s go back to our sales team and see what happens in a best and worst case scenario.
In the best case, from those 100 leads, assume that 45 will eventually buy. Not all of them will buy from our sales team, of course; let’s say their closing ratio is about 33%. So out of those 100 leads, they will achieve 45 sales opportunities, and can expect to close about 15.
In the worst or more typical case out of those 100 leads assume 45 will buy, ok so far! However we have found that most sales teams will fully follow up on 25% of leads therefore they will follow up on 11 or 12 and close 3 or 4.
The basic problem is sales teams and sales managers can wildly underestimate how long it takes for those leads to turn into sales.

Most teams would tell you that if 45 purchases are eventually made, the buying behaviour would look like the red line below as leads become old and die.

In fact, the behaviour looks more like the green line. About four will buy in the first month; about the same the second month, and so forth:
The point that is usually missed is that a buyer could be anywhere in the buying cycle when they receive the sales call. Some are ready to make a final decision. Others are just beginning to explore their options.  In other words, out of those 45 opportunities, only about four will be ready to action. The rest are just not ready yet.
And unfortunately, a “Not Ready” lead can look like a bad lead. These prospects aren’t really focused yet. They don’t want to set up an appointment or talk about next steps. It’s easy to assume they’re not really serious buyers. But they will be once there need becomes more urgent or important.
 Don’t throw away leads just because they are not ready to blossom.

The worst thing a sales team can do with new leads is throw them out and start over with a new lead list. They have already done the hardest part, making contact and establishing a connection. Now the team needs to cultivate those opportunities and the team management needs to understand the dynamics of the sales pipeline.
What does this mean for marketers? Marketers have to work closely with their sales force to make sure they understand how leads continue to develop. And you need their buy-in to keep following up on those leads, so that you both can get an accurate idea of how those leads perform over time. Do that, and Marketing and Sales will be pulling in the same direction at last!
Persistence Pays